REUTERS - Trading started on Monday in South Korea's new emissions trading scheme, which will impose caps on emissions from 525 of the country's biggest companies and becomes the world's second biggest carbon market.
The new market is a key component in the government's plan to meet a target of limiting climate-changing greenhouse gas emissions in 2020 to 30 percent below current levels.
Under the scheme, South Korea's power generators, petrochemical firms, steel producers, car makers, electro-mechanical firms and airlines have been given a fixed amount of permits to cover their emissions for the next three years.
The government has set the total amount of allowed emissions for the 2015 to 2017 period at 1.687 million tonnes of carbon dioxide equivalent. Any company emitting more than they have permits to cover must buy allowances from others in the market.
In Monday's trading, a first batch of permits went through at 7,860 won ($7.26) each before the price climbed to 8,640 won ($7.97), similar to price levels in the European market, the world's biggest.
In the first day of trading, four deals for a total of 1,040 permits went through on the Korea Exchange (KRX), which hosts trading under the scheme.
"We expect modest volumes initially, probably for the first six months," Anders Nordeng, a senior analyst with Thomson Reuters Point Carbon, said.
"Partly because the mechanism is new and relatively unfamiliar for the participants, partly because we think many Korean industrials will avoid acting in a manner that would give their competitors any indications on their growth rate."
The Korean trading scheme has no links to the international carbon market and participation is restricted to companies directly covered by the scheme, with the exception of three policy banks. Commercial banks and trading houses are excluded.
Although the market is expected to have a surplus of permits during the first three years, analysts say power generators will be short of some 75-90 million permits.
Price forecasters at Thomson Reuters Point Carbon and ICIS had estimated that the permit price would start at less than $10 but rise to around $30 in 2017.
South Korea is the second country in Asia after Kazakhstan to launch a nationwide emissions market. Regional schemes are in operation in China and Japan.
The EU market will be dwarfed by the eventual national scheme in China, which should be fully operational in 2020.
Reporting by Stian Reklev in Beijing; Additional reporting by Brian Kim in Seoul; Editing by Alan Raybould